Four councils are poised to be involved in the The UK Municipal Bonds Agency’s debut bond issue after Moody’s gave the agency an Aa3 credit rating.
Moody’s said the rating, which comes with a “stable outlook”, reflects the strength of the four local authorities involved in the first pool, which Room151 understands is viewed as a “proof of concept” project at the agency.
“The Aa3 rating with stable outlook assigned to the UK MBA reflects the strong credit quality of the underlying pool participants,” Moody’s said in a statement.
“In particular the credit quality is supported by the high level of control and monitoring of local authorities, by the central government, strong institutional framework and statutory codes of practice covering local authority capital expenditure, investments, treasury management and borrowing.”
However, no details are yet available of which local authorities are involved, the size of the issue, the rates borrowers will pay, or precisely when the issue will take place.
Moody’s said the rating was supported by the presence of a joint guarantee of all borrowers, as well as a “pre default deficiency remedy” to mitigate default risk.
Sir Merrick Cockell, chairman of the UK MBA, said: “This affirms the creditworthiness of the agency at a time when there is a limited supply of high quality paper.
“It is a strong vote of confidence in the local government sector. In over 900 years, no local authority has defaulted on its debt obligations.
“The agency is well placed to issue bonds to the market when our local authority clients are ready to do so.”
Moody’s also listed factors that could send the rating up or down. These include an improving, or worsening, of the UK government’s rating, which is currently at Aa2, two steps down from the triple A rating the country had until 2013.
Another potential threat to the rating is the failure of liquidity available to the bonds agency to keep pace with local authority demand.
Moody’s said the rating could also be affected by changes in the creditworthiness of the local authority participants.
The Municipal Bonds Agency launched in 2014 to aggregate debt by borrowing money from capital markets and then make “matching loans” to councils.
The aim, as Moody’s points out, was to provide an alternative source of borrowing to the Public Works Loan Board (PWLB).
There was much speculation almost two years ago that the agency would issue a bond before Christmas 2016.
